How an appraiser can help divide operating businesses in a divorce

| Feb 11, 2021 | Business Valuation

One of the most vexing problems in a Maryland divorce involving operating businesses is valuing and dividing the businesses. A proper valuation involves complex questions of asset value, the amount of debt, predicting future income, and deriving an estimate of fair market value. One of the best ways to resolve these issues is to retain a certified business appraiser, preferably a person with experience in dividing assets in a Maryland divorce.

Valuation issues in a divorce

Business valuation can be complex because every business is unique, and a solution that provided an appraisal in one situation will not necessarily be effective in a subsequent case. Perhaps the best way to illustrate how a business appraiser works is to briefly summarize some of the issues that appraisers often face.

  • Choosing a standard of value. In determining a standard of value, appraisers often look to state laws for guidance. Some states equate the standard of value with “fair market value.” Others use intrinsic value, value to the holder or simply “fair value.”
  • Good will. Valuing good will, that is, a company’s intangible assets, is always difficult. A business appraiser must take into account whether the value of good will depends upon one or more individuals associated with the business or whether it must be derived from the business itself.
  • Date of valuation. A business appraiser must often derive an estimate of value on two different dates to allow for the company’s growth while the divorce is pending. Selecting the proper date can generate significant controversy.
  • Active or passive increase in value. If the increase in value of a business is attributable primarily to the efforts of one of the spouses, that spouse may be entitled to claim a larger share of the company’s value. On the other hand, if an increase is attributable to market conditions, that conclusion may significantly affect the share of the business attributable to each of the spouses.
  • Determining the accuracy of business records. In some cases, the appraiser will be asked to verify the accuracy and validity of the company’s business records. This task can be complex and is often subject to intense criticism from the opposite side.

Summing up

Anyone who is facing a divorce that will involve the division of operating businesses may wish to consult an experienced divorce attorney with experience in employing and directing business appraisers. A knowledgeable lawyer will know which questions must be asked and answered by the appraiser and will be able to use the appraiser’s work product to the greatest advantage.